CNN Money has a slideshow called “Meet the millionaires” in which they share a bunch of infographic-type statistics about millionaires. Most of it is “personal finance porn,” that is it’s interesting to read but not really valuable to the average person… except slide 3.

Slide three answered the question of how the millionaires “got there” and here were the responses:

95% “Hard work”

83% “Smart investing”

81% “Frugality”

67% “Risk taking”

41% “Luck”

Hard work, smart investing, and frugality were the top three answers and the ones given by the vast majority of millionaires. Those are all three things that anyone can do and with enough time, a million dollars is not that absurd a sum to save over a long period of time.

If you had an investment that returned 5% over 40 years, you could reach a million dollars if you saved $8,278 a year. That’s about $690 a month. If your returns were 7%, you’d have to only save $5,009 a year, or $417 a month. It won’t be easy to find $417 or $690 a month to save, but through frugality and hard work, it’s probably within reach or at least psychologically feasible. Maybe not today, maybe not tomorrow, but $417 is a more manageable number compared to $1,000,000.

Incidentally, the median price of a millionaire’s car is $31,400 and 90% of them graduated college.

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Isn’t that a mighty big if? Perhaps I simply need to be more hip to the investing game, but it seems that a guaranteed 5% return for four decades is pretty rare.

But there is also another factor in the survey itself – given that it’s asking the millionaires themselves, the fact that the top answers all give the credit to the millionaires themselves should perhaps be taken with a grain of salt. What, precisely, is the difference between “smart investing” and “risk taking” that worked?

The average annual return from the S&P each year for the last 20 years is 16.88% (I took a simple average of the percentages of the total return including dividends from this spreadsheet). There were some big drops and some big jumps, gotta love volatility, but 5% on something over 40 years isn’t unreasonable. It’s not guaranteed, nothing is, but it’s a conservative number to use.

Average and annual (actual) returns on your money are two very different things, but either way, 5% nominal return is probably the rock bottom guide to see if you are investing correctly since the 30 year treasury, at its historic low yields, still nets you 4%+ a year.

What I mean is, if you cannot get at least a 5% return a year over the very long term (20+ years), you are spending too much of your time hurting your returns.

There is no ‘guarantee’ in anything. But stocks or bonds easily returned over 5% annually on average over long terms such as 40 years. Of course stocks will have large ups and downs from year to year but in the long term the average annual growth is closer to 10% historically.

I do agree that the survey of millionaires about themselves is obviously biased. 95% of them didn’t get there by ‘hard work’ since I’m sure that >10% of them inherited their millions.
But at least 41% of them are humble enough to admit that luck played a part.

I may be wrong about how many people inherit their wealth. Millionaire Next Door said about 20% of millionaires inherited 10% or more of their wealth. Hard to say how that translates into how many millionaires inherited >$1M. One source said that 6% of people with over $500k inherited it and 25% of them got it from inheritance + investing.

Its hard to sort the inheritance from the other factors in their current wealth. Someone might start with a $1M inheritance and then grow it into $5M via conservative investing. Only 20% of their money is inherited but they wouldn’t be millionaire without the inheritance.
I’d say ‘up to’ 20% of the millionaires are millionaires because of inheritance.

I also don’t have an answer to the percentage but we should also add to the fact that kids who had inheritances probably had a more comfortable childhood than many other people in the world. Instead of fighting the kids next door for food, they had the chance of a solid upbringing. Instead of begging on the streets, their family encouraged then to do well in school.

When it comes to which family you were born into/raised from, that’s got to be all luck. Anyone who doesn’t tick the box beside “luck” is really just kidding themselves.

I’m hoping that the education I have is right and that you can invest smartly by generating cash flow through business acquisition, real estate and due diligence. This takes us to the 3 top answers of Hard Work, Smart Investing and Frugality. The financial segment is a lot more complicated than most are willing to admit, and the right combination of the three, I believe, is the answer.

I don’t think readers should get to caught up in the numbers. The general idea of your article is important. Without hard work, wise investing, and prudent spending there is little chance of building long term wealth. Even people who make it without these principle (i.e. lottery) are rarely successful and many end up broke.

What if you would like to have $1,000,000 accumulated by the time you turn 65, which will be 40 years from now. How much would you have to put away each year to reach your goal, assuming you’re starting from zero now and you earn 10% annual interest on your investment?

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